Don’t expect the increase in mortgage rates to hit new home sales the same way as existing-home sales.
Investors will be watching earnings commentary at one of the nation’s largest home builders on Tuesday to gauge the impact of higher rates in the new year.
Weekly measures of mortgage rates have been on an upward climb in the second half of the year, passing 7% in August and broadly gaining since then. The gains weighed on sales of existing homes, which make up the bulk of all home purchase transactions, in September. It isn’t that builders, the previous beneficiaries of buyer demand in a supply-constrained housing market, are immune from the impact of rising mortgage rates. Industry confidence measured by the National Association of Home Builders fell in October to its lowest level since January.
UBS analysts John Lovallo, Spencer Kaufman, and Matthew Johnson lowered their 2024 builder estimates and price targets “to reflect the likelihood that ‘higher-for-longer’ interest rates will necessitate incremental rate buydowns and other incentives to sustain volume,” they wrote in a report last week. The analysts lowered their home building gross margin expectations by 1.4 percentage point on average.
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